The ABCs of Baby Finance

Raising a child from birth through age 17 will cost a typical middle-income family almost $235,000, according to a 2012 report from the U.S. Department of Agriculture.

Consider the following advice to help you plan for your financial future, prepare for your new baby and protect your growing family.

1. Purchase life insurance. Life insurance is a foundation of financial preparedness and much more affordable than you might think. You should generally get better rates when you're young. Talk to your life insurance company about what amount will protect your family.

2. Start planning for college in the delivery room. The average cost of tuition and fees for the 2011-12 school year was $8,244 for a public college and $28,500 for a private one, according to the College Board. Financial aid and part-time jobs may help your child pay for college. Parents who want to chip in may consider setting aside some money today in a tax-advantaged 529 college savings plan.

Saving for retirement, however, should take priority over saving for your child's college education. Student loans and part-time jobs abound for the college crowd, but loans generally cannot be used for retirement.

3. Update your will and appoint a guardian. Name a contingent guardian and update your will to give your family some protection in case something happens to you.

4. Take advantage of tax savings. The IRS allows you to take an exemption for dependent children, including those born or adopted anytime during the year. Depending on your income, you may also be entitled to a child tax credit for each qualifying child under age 17. Parents who work and pay for day care for their dependent children also may be able to take advantage of a child-care credit. If you work, visit the IRS withholding calculator to see if you should adjust the income tax withheld from your paycheck.

5. First-time parents? Prepare your baby budget now. Long before the due date, examine how your baby will affect everyday expenses. Stroll through baby stores, take notes, then redo your annual budget to include the new line items. This exercise can help you figure out if you need to cut spending in other areas.

6. Experiment with living on one income. If one parent is thinking of leaving the workplace to care for the baby at home, try living on one income, well before the baby arrives, to see how feasible it is.

7. Say bye-bye to brand names. Your baby won't know the difference between top-of-the-line baby blankets and less expensive, quality ones that feel just as snuggly. Hand-me-downs, consignment shops, garage sales and even eBay are great sources for gently used, quality children's clothes at bargain prices.

8. Think twice before buying a new home. A new home for your growing family sounds tempting, but you could find yourself baby-rich and house-poor. Not moving at all might be better, at least for a while.

9. Accept baby-sitting offers. Among the best financial assistance relatives and friends can give is volunteering to baby-sit. If they offer, graciously accept.

10. Use a flexible spending account for day care. If your employer offers a flexible spending account, you may be able to use it to pay up to $5,000 in child-care expenses a year. That money will be exempt from income taxes.